Wednesday, March 12, 2008

Ms. M&P asked what I'd do with $2 million in lottery winnings. Just for fun, let's say that's $2 million after taxes.

Here's what I'd do, in this order:$200,000, 10% right off the top, would go to good causes.$50,000 would find its merry way to my emergency fund, to sit in cash and not be touched unless necessary.$250,000 would buy my parents a nice place upstate.$250,000 would buy me an apartment wherever I end up going to graduate school.$250,000 would buy my sister her first home (unless it's in New York!).(That's a million right there: charity, emergencies, and three houses. Those are my priorities, evidently.)$100,000 would pay off the relatively small mortgage my parents have on their apartment.$20,000 would bring my dream wardrobe home to my real-life closet.$20,000 would send me and my sister on an incredible vacation next summer. We'd start in Berlin and take trains to Moscow by way of wherever we felt like going, then get on the Trans-Mongolian Railway to Beijing via a couple of weeks in Ulaan Baatar.$15,000 would pay for my parents' next summer in Italy.$5,000 would buy my friends, beloved unto me, presents and definitely several rounds of top-shelf drinks$40,000 would be stashed in a for-spending-because-I-won-the-lottery fund.

And as to the remaining $800,000? Stick it in a mutual fund where it belongs, and call retirement taken care of. If I never invested another dime and the stock market only returned 6% after taxes for the next forty-one years, I'd still have nearly $10 million at age 65.

15 comments:

Anonymous
said...

($330,000): Pay off mortgage (yes, I know the arguments against doing that, but I just want to be done with it)($200,000): Charitable causes($200,000): Add to my kids' 529 funds($100,000): Emergency fund($50,000): Yippee, I won! fund$1,120,000: Investment portfolio

$120,000 - Pay off debt$20,000 - Emergency fund$400,000 - Buy a house or condo$200,000 - College educations for my sisters, nieces, and nephews$100,000 - Pay off my parents' house$60,000 - Take my family on a cruise to somewhere with warm beaches$200,000 - Donate to charity$900,000 - Invest, retire, and live off the investment income

$1 mil to retirement (my target)$1 mil to spend:parent's mortgage, travel, a very large house downpayment fund, new car, prezzies for good friends, college funds for my cousins, and a full time cook/fitness trainer/maid for my parents and sister so they stop eating and living so unhealthily, and maybe have a chance to beat their ailments.

I probably would give in to Snork Maiden's desire to buy a house with a garden. That's $500-800k around here. I'm not sure whether I'd buy outright or use some finance. Mortgage rates are 8-9% here and not tax deductible if you are an owner occupier. If Snork Maiden quit her job we might move to another town, but actually I like it here. In smaller towns property can be half the price of here. I'd be expecting to average at least $200k from my portfolio and after paying taxes and leaving an inflation adjustment in, we'd be doing well enough for that. I'd continue working on investing/trading. I'd go see an accountant consultant to see whether I could improve on the tax side of things.

The remaining $1.2-1.5 million would get invested. I wouldn't be giving money to family, my mother hardly uses the money she has. And she can help my brother and his children... I'd now have the same net worth as her. I wouldn't immediately give money to charity but probably would start thinking about what I might do in that direction in the long term. I'd want my money to be of the most use.

We'd probably up our day to day lifestyle a little bit but nothing at all dramatic. If we had a child, I'd seriously think about hiring someone to help for a couple of years.

$100,000 FUN MONEY - to be used gradually over time, as desired, when my regular budget doesn't cover stuff. A 6 week tour of the Mediterranean would be in order ($10-$20K), as would a shopping spree at Nordstrom ($3K/yr), as would a few key pieces of jewelry ($5-10K), as would a new flat screen TV ($3K)...

With a lower/nonexistant savings threshhold for the EF, etc, I could really up my Roth 401k contribution, so I'd be able to contribute $15K/yr or more to retirement funds (including the Roth IRA).

Escape Brooklyn - unless you leave in 3% or so to cover inflation your money will rundown over time in purchasing power. So you'll need more than a 6% rate of return to receive your current income. Or maybe you meant a real income of 6% which is practical maybe if you lean towards stocks.... The usual rule of thumb is to withdraw 4% of the initial amount and adjust for inflation over time. That would be $80k initially (before tax) which is good. So there is enough here IMO to retire especially if you can push your rate of return up.

My parents and other close relatives are all well off, not even a mortgage to pay off. The only thing I could really do for them that would cost money would be to see them more often, which after retiring I would have the time to do.

I think instead of donating to charity I would spend a year in the near future living in a developing country to see what conditions are like and then decide how I could best help them--whether through donating to an existing charity, starting a new charity, or donating my time instead.